Good morning,
Draghi to sit on his hands
Today’s European Central Bank meeting takes place in Vienna and with no new policy announcement likely from Mario Draghi or the Executive Council the focus will be squarely upon the tone of the meeting and Draghi’s comments as well as the latest economic projections from the ECB analysis teams.
Given the recent trend of weak growth so far being unable to create inflation – as epitomised by yesterday’s slew of sluggish dross from the European manufacturing sector – and the Bank’s insistence that time is needed for its QE and credit easing measures to work, we see no need for the ECB to change policy on Thursday although we can expect negative revisions to the inflation outlook or most certainly, caution over the belief that inflation is starting to rebuild with anything resembling consistency.
The be all and end all is core inflation in Europe at the moment and as much as a higher oil price is developing headline inflation pressures, a reaction in the core from stronger goods and services is what is needed for the ECB to become in any way comfortable with what is taking place and maybe feel comfortable to stay their hand from further stimulus through the remainder of the year.
We remain negative the euro
As we pointed out on Tuesday EURUSD is paying little attention to Europe at the moment and is trading more as a barometer of the June Fed meeting. That being said, the single currency is a little stronger this morning as we get ready for the meeting and we continue to foresee weakness for EUR through the rest of the year on a basis of an increased need for stimulus, a lack of fiscal support from Eurozone governments and the impact of the migrant crisis.
It is still our longer held view that EURUSD pushes to 1.05 before the end of the year.
Oil but no deal
Also taking place in Vienna is the latest OPEC meeting; a get together that has done very little in recent months apart from bringing people together who roundly hate each other so they can squabble over the price of oil. Some oil analysts are talking up the chances of a production target being put in place but without the assent of Iran, who have continually denied to be beholden to any cap on production we think that it matters little.
Referendum Watch – 21 days to go…
There was little new referendum news yesterday apart from reports from High St bookmakers of a ‘deluge’ of betting on the result with the Leave camp seeing the majority of the money come its way. Sterling has continued to weaken in a move that I personally think is overdone. It reminds me a lot of the Boris Johnson inspired dip that took place earlier in the campaign. That being said, the Leave camp have all the momentum it seems at the moment and their message of immigration controls and strains on public services seem to be resonating a lot more with people than warnings on the economy.
Have a great day.